Brokerage CLSA has placed a “buy” rating on China Resources Enterprises (CRE) (0291:HK), claiming the stock is undervalued. The call is well-grounded: CRE is looking to raise the price of Snow beer, the brand it controls through a joint venture with SABMiller. The company is confident that Snow, the country’s biggest selling beer by volume, can sustain an increase of at least 3% in the average selling price, according to CLSA.
China’s national and regional beer market is heavily fragmented and ripe for consolidation. Four major players currently account for about 56% of sales, with CRE Snow occupying approximately 18%, Anheuser-Busch Inbev 14%, Tsingtao Brewery 14% and Yanjing Brewery 10%. Several regional plays including Jin Xing Brewery, Pearl, Chongqing and Kingway collectively hold an 11% market share, with smaller beer makers making up the remaining 33%.
With its repositioning into a deeper focus on beer, food processing and retailing, CRE is currently looking to snatch up smaller fish through mergers and acquisitions. It is not alone. Tsingtao (0168.HK; 600600.SH) is similarly looking to further expand its nationwide footprint, taking advantage of product spread and pricing power in an industry that has more than once proven its resilience to economic hardship.